Best (and ONLY) Options Trading Strategies that Every Options Trader Must Know (Beginner Tutorial)12/24/2018 The best optionstrategies that every options trader should know. My name is David Jaffee, I'm the founder of BestStockStrategy.com BestStockStrategy.com. I earn around a million dollars a year by trading stock options. I am the only legitimate stock market coach. I don't tell you how to how trade penny stocks or Forex or buy out of the out of the money call options in order to try to hit home runs. All of my students make money, and I'm here to help you so I'm going to try to keep things as simple as possible, because the reason why you're watching this video is you want to make money so the option strategies that you need in order to make Money is first, you need a watch list and you should keep your watch list as small as possible.
If you have any count, that's below 10,000, you should trade at a maximum two securities, probably only one, you should choose Facebook and then just watch it. That'S it and then you get comfortable with the trading range. If you open account, that's between $ 10,000 and $ 50,000, you should trade too http://casinoslots-sa.co.za/eco-payz. If you have something between a $ 100,000 and $ 300,0000, you should trade a maximum of three securities. I have a multi-million dollar account and I trade. I have positions on at all times and only around five securities. These are all market leaders, Facebook, Amazon, Boeing, Lockheed Martin. I also have on my watch list Goldman Sachs PayPal. You know I have like recently the gaming stocks on a TV I like ttwo, so the first strategy is eliminate. All distractions have a very small watchlist, don't get tempted by like Nvidia or Tesla or Netflix or trading futures or penny stocks. Those people don't make any money they're, not profitable traders. They don't provide you with their full trading statements. They don't provide you with screen recordings inside their account. There'S no statistical advantage to you ever trading and making money in futures or penny stocks or Forex or using technical analysis. This is the only way that you're going to make money alright, so first things first have a very small watchlist. The second thing, the second strategy is get comfortable with the trading range. Facebook right now is trading 175. Its training range over the past few weeks has been the high of like 180 and a low-end. It'S been on 170. I will then wait for Facebook to fall to 172 and then I will sell an option with a strike price of a hundred and fifty eight dollars that expires around six weeks in the future and I'll collect around a dollar 20 a share or $ 120 per Contract, that's pretty much the strategy, but being extremely disciplined is another point that you have to do now. The third strategy is, you only want to trade naked options unless you're going to trade a super expensive stuff like Amazon, that's going to reduce your buying power, butt naked options, contrary to what a lot of people tell you are way safer than vertical credit spreads, because, With a naked option, you maximize the amount of credit and premium that you receive it's extremely easy to roll and manage a naked position relative to a vertical credit spread and also you are inherently protected against you're, a natural greed or your natural tendency to be greedy. When you trade a vertical credit when you trade, a naked option versus a vertical credit spread, because a lot of people where they get in trouble, is those sell to naked options with them with a vertical credit, spread, they'll sell 20 of them and then, when the Option trades in that no-man's land below the foot that they sell and above the foot that they bought when they sell too many contracts of vertical credit, spread they end up losing six months or a years worth of games, so only trade naked options. So to recap: you want to keep a very small watch list again. If you have an account, that's under ten thousand dollars. You want to trade a maximum of two, and even if you only trade, one security, that's good enough! You can make thirty to fifty percent. Every single year, by trading one security, then you want to get comfortable with its trading range, its recent trading range. You want to wait for it to fall in the low end of the range you want to trade, naked options and, let's say Facebook like as an example, is trading at 175. Its trading ranges 170 to 180. You wait for it to sell to trade down 172. Then you sell a naked put option with a strike of 158. You collect a dollar 20 and share that will expire six weeks in the future that trade is profitable around 95 % of the time, that's pretty much it. That is how you make money in the stock market. You, the real trick to making money in the stock market is to be disciplined and you don't want to get distracted. I don't read any articles when a student messages me about Netflix or Tesla or and video or something like that. I just ignore it. I don't read any articles, I don't try to compete on information. I don't get distracted. I just do this every single day of the week I hit singles and I make a shitload of money. So these are the best options trading strategies you can try to keep it simple. I know that you probably have other questions about. Oh, do you look at the deltas? You look at the Ivy. Do you look at the you know the relative IV or the implied volatility, and, like all that, so I don't listen. I don't. I don't look at any of that shit and the reason is that all of it is reflected in the price that you receive when you sell options.
4 Comments
So in this particular example, what I've done is I've assumed that volatility is somewhere between 16 to 17 and 18 when it comes to the VIX index, and I have accounted for 2% risk. So if if I have bought 75 shares of a stock which is at 10700, I stand to lose 16000 rupees if it goes down by 2%. So now I need to create a hedge for myself so that I can bring down this overall risk.
So what I'll do is, we saw in the previous slide that at 10900 call option that we are about to write, the premium value for the same is 94. So if I write 75 units of 10900 CE, that is call option. And why 75? Because 75 is the shares that I have bought in that particular stock. So once I write or sell 10900 call option, I receive a premium of 94 rupees. So 94 into 75 would be 7050 rupees as a credit. because I am writing a call option here. So in case I don't create this position, my open risk without hedge is 16000 rupees because I am accounting for at least 2% fall in my stock when I buy the stock. But as soon as I sell a call option of higher strike price mind you my buying price was 10715, and I am writing 10900 call option for a premium of 94, So the moment I open this position, my risk comes down from Rs 16050 to rupees 9000 roughly. The main reason why because open risk was rupees 16050 because of the stock position I was holding. But the moment I wrote 10900 call for a premium of 94 and received 7050 Rs credit my overall risk became Rs 16050 minus rupees 7050. So just by creating a hedge, my overall risk has fallen by about 45%. Now this is how you go ahead and execute a proper hedge while you're trying to bottom fish in the market which is always a very tricky thing to do. But just by creating a hedge and by selling some higher strike price call option, you can actually lower down your risk and still be in the market so that you can anticipate the next up cycle that is going to come about. So up till now, what we have seen is that covered call writing is buying a stock and then selling higher strike price call. We have also covered the theory part of how you can use this strategy to generate income in your own portfolio that is some existing stocks have. We've also seen how you can attempt to buy into falling prices by creating a appropriate hedge. Now what I've done is that in this particular video, I have not covered any real life example, I have taken hypothetical example because now we are getting into some complicated option strategies which is why I am trying to separate out the theory part and the real life example part. So in this particular video, I have just covered the theoretical part because I am sure that at this stage, many of you have lot of questions about this strategy, and you would want to watch this video again. So I would strongly encourage you to do that. in next video I will be releasing next week, I will be getting into detailed example of how you should be executing both of these strategies taking an example of Bank Nifty which is actually the most popular instrument across retail participants. I'll be precisely showing you with real life option trading price/Greeks and spot price on how to execute this strategy for income generation, and as a hedge to limit your losses. So the main points that I will be covering for the next option video would be to look into Bank Nifty as a trading instrument with respect to this particular strategy, how to hold Bank Nifty positional futures and generate income when this positional trade is not doing well for you. I'll also be looking into the important factors to consider while executing the strategy to generate consistent income. I'll also look into attempting to bottom fish Bank Nifty and how you can create a hedge by looking at Bank Nifty options data by options Delta and options Theta. And in the end, I'll also be assessing the impact of this strategy in terms of overall risk. So again, if you're very new to options trading, I'll strongly encourage that you watch this video again, because by the time I come out for the next video, I'll be covering up a very specific example with respect to Bank Nifty and how to execute this particular strategy on Bank Nifty. I'll also tell you one thing that if you've not watched part one, part two and part three of options trading series, please do go and watch it. Because I am trying to start from the very basics and then I am building to advanced concepts, and if you have landed directly on this video, I will strongly encourage you to watch those parts as well so that there are lot of terminologies and concepts I have discussed that you should be aware of. So thanks a lot for watching this video. In case you have any doubt, just leave a comment below, and I will get back to you as soon as possible thanks a lot guys, be safe. - [Narrators] Click on the subscribe button and bell icon to get instantly notified when a new video is uploaded. thank you for subscribing So I know these seven. steps are slightly confusing. So what I'll do is in the next slide. I'll take up an example and calculate each step for you. So again this is the same slide, this was the theory part of the slide now, this is the practical side.
So step one was instrument selection with high options volume. So step second if you recollect was, you need to enter your stock stock features or index features in this particular case, spot price is 10700, and entry was taken at 10715, 75 shares were bought. Step three was strike by selection, take a look at spot price, it is 10700 strike price, I had said should be one or two strike prices away. In this particular case, I have taken two strike prices away, that is 10900 call I'm willing to sell. So the premium of 10900 call is 94. Step four, was also to note down Delta and Theta values. So Delta is 0.41 and Theta is -5.30. So for every hundred rupees price movement that I see in my particular stock, the premium would go up by 40 rupees. Now why 40 rupees? Because 100 point movement has to be multiplied by Delta value. So 0.41 into 100 would be about 40 rupees. 40 rupees added to the initial premium that is 94 rupees would come out to about 135 I think. Now each day your option roughly loses 5.3 rupees of premium value, how do I calculate it? Look at the Theta value. which is why in the first place I told you, if you are not understanding this Delta and Theta concept. Go and watch part one, part two, part three, of the options trading strategy videos that I have already done so that it's easy for you to grasp these concepts. So step five was that you need to calculate how much loss you would take if your price falls by 1%, 2%, or 3%. So 1% of 10,700 is 107, 2% of 10,700 is 214, and 3% of 10,700 is 321. So I have calculated the net points loss that you would take on your underlying stock position if it were to fall 1% 2% or 3%. Step six was to put a rupee value or dollar value to the loss you would undertake. So that would be your position size into the points here. So 75 shares into 107, that would be 8025 rupees. 75 in 214 would be 16050 rupees, and 75 into 321 would be 24075 rupees. What is this? This is actually the rupee loss you would take if your stock were to fall by 1%, 2%, or 3%. In step seven now, you must essentially create a hedge for potential losses that is rupees 8,000 loss when your Price Falls by 1%, 16000 loss when your price falls by 2%, and 24,000 loss when your price falls by 3%. So I hope these steps are clear to you both in theory form and in a practical example form. In case you have not understood this, just pause the video, go back to the previous slide and watch this again, because your understanding of these two particular slides is absolutely crucial for you to execute this covered call writing strategy in terms of a hedge for your overall position. So in the previous slide we have seen that for 75 shares that we have bought in a stock, if the price falls by 1%, we would potentially lose 8,000 rupees, if the stock falls by 2%, we will lose 16,000 rupees, and if the stock falls by 3%, we would lose 24,000 rupees. Now you need to assess volatility when it comes to bottom fishing, because if volatility is too high, then you need to anticipate for how much movement, you need to hedge your overall positions that is if the volatility is low, you can account for just 1% losses, and create a hedge accordingly. If the volatility is reasonably high that is above 16, 17 on a VIX index, then you should be at least accounting for 2% risk in your portfolio or the position. If volatility is really high, and you are attempting to bottom fish in the market, you should at least expect that whatever positions you take that is whatever stocks you buy while it's falling, it will at least move 3% or more in the short term, that is against you. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |